Report finds no power plants are being built ‘on spec’ anymore

A report released earlier this spring by the American Public Power Association says developers of new power generation units have grown more conservative in their financing approach – and, as a result, few plants are built “on spec” anymore.

“Power Plants Are Not Built on Spec: An Analysis of New Electric Generation Projects Constructed in 2011,” is the title of a white paper released in March by APPA and its Electric Market Reform Initiative.

“This analysis of these new generation projects shows that almost all new capacity is being built under one of two financial arrangements: a long-term contract with a utility purchasing the power to serve customer load or ownership by an integrated utility to supply power to its customers,” according to the APPA report.

Only 2% of the projects’ capacity, and 12% of the number of projects, “was constructed for market sales,” the report states. A small portion of the new capacity, about 1%, is owned by an end-use customer to serve its own load. Federal stimulus funding, as well as utility and state financial assistance, played a role in a number of the projects.

“None of the new coal or natural gas plants were built for market sales,” the APPA report goes on to say. Biomass was the only category with the majority of the MWs built for market sales (58%, primarily consisting of landfill gas-to-energy projects).

The APPA serves the nation’s more than 2,800 community-owned electric utilities. The APPA report also includes criticism of what it views as “the failure” of deregulated electricity markets and regional transmission organizations (RTO) to spur new construction.

“The findings presented in this paper demonstrate that the construction of new power plants necessitates stable long-term financial arrangements,” the APPA said in the report.

“While supporters of RTO-run centralized markets argue that ‘competition’ and ‘price signals’ are key determinants of new infrastructure development, such claims are not supported by real-world evidence,” the APPA said. “Long-term contracts and vertically-integrated utility ownership of generation are the predominant means of supporting new capacity, especially for lower-emission coal, natural gas, wind, and solar power, all of which will be needed in the future to replace the shrinking supply of electricity from retiring coal plants.”

The APPA report says many states “have expressed frustration with the ability of the current RTO market structures to address these new resource needs, and have taken steps to obtain needed new generation.” In two of the “most notable and highly contested” examples, Maryland and New Jersey turned to their own competitive bidding processes to seek long-term contracts for new natural gas power plants.

In the report, APPA analyzed 92 generation projects completed in 2011. Most of the projects were listed in FERC’s monthly Energy Infrastructure Updates. APPA also used supplemental information from a February report from SNL Financial as well as various other sources. APPA figures that it reviewed 65% of the generating capacity added during 2011.

About Wayne Barber 4201 Articles
Wayne Barber, Chief Analyst for the GenerationHub, has been covering power generation, energy and natural resources issues at national publications for more than 20 years. Prior to joining PennWell he was editor of Generation Markets Week at SNL Financial for nine years. He has also worked as a business journalist at both McGraw-Hill and Financial Times Energy. Wayne also worked as a newspaper reporter for several years. During his career has visited nuclear reactors and coal mines as well as coal and natural gas power plants. Wayne can be reached at wayneb@pennwell.com.